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Since the recent CTIA conference wasn’t the buffet of location news, one potential deal could really set the industry on fire going into the summer months. Google and Facebook both are rumored to be in talks to purchase Waze. Some say this would mean Facebook would transform into a mobile advertising company, with local ads, if it were the winning bidder. Google’s rumored interest would block the social media giant’s momentum in that marketplace.

by Kevin Dennehy

In what could be one of biggest deals in the location industry, both Google and Facebook have been rumored to be interested in buying Israel-based mapping and navigation company Waze. Published reports indicate the deal could be worth $1 billion.

Some industry analysts are skeptical that a deal could be valued that high, which would place it in the same realm as Facebook’s $1 billion purchase of photo-sharing service Instagram.

“We really do not know if Facebook is willing to spend a billion dollars on Waze, but if the deal happens, (Facebook) must have considered its options. How could this be? First, I suspect that Facebook is certain it will grow beyond its current boundaries to become the world’s most valuable company,” said Mike Dobson, Telemapics president. “Operating under this mindset, a billion dollars is peanuts, and they will not care if everyone else thinks they overpaid. In other words, Facebook might not be basing its calculation on the same ‘time-value of money’ that the rest of us are using. Second, if the economics do not really matter to Facebook, the more important question is ‘What advantages would Facebook accrue by acquiring Waze?’”

Dobson believes that Waze map databases are not competitive with Google or such commercial providers as Nokia or TomTom. “In essence, Waze does not offer competitive map coverage, competitive data quality, competitive data attributing, or a useful source of POI data. More importantly, I suspect that the Waze database will be a major league headache if Facebook plans to use it as the basis for its mapping activities supporting local search,” he said. “Further, I doubt that Waze understands enough about local advertising to help Facebook realize its most important goal of becoming a powerhouse ad agency capable of creating its own captive local search market, comparable or exceeding that enjoyed by Google.”

Another industry insider, Marc Prioleau of Prioleau Advisors, said that quality and coverage of the maps would make the deal successful — if it really is going to happen. “The rumor mill on Waze seems to be quite active so it is hard to know if there is substance there. Waze has built a very innovative traffic application, and they use the user data to build a digital map data set,” he said. “The value of the company would be tied largely to the quality and coverage of that data set and the perceived ability of a big platform like Facebook to build that out into a truly serviceable worldwide map.”

Waze is a mapping company built through crowdsourcing map and traffic data over mobile phones, which is the “magic” Dobson believes Facebook finds beguiling about the company. While Waze claims 45 million users, its active base is more likely around 10-15 million, Dobson said. “Conversely, if you stop to consider the amount of data you could generate if all of Facebook’s mobile users were gathering mapping data through an app built on Waze, then the company might be willing to gamble on the acquisition,” he said. “Providing analytics on the behavior and location of its mobile users to advertisers and other interested parties could be a huge opportunity. On the other hand, there are numerous paths to this endpoint, not just Waze.”

Dobson said if he were to advise Facebook on the acquisition, a suggested course of action would be that the company write their own crowdsourcing application and build a good quality map database through licensing and direct and indirect map compilation techniques. “My off-the-cuff estimate is that this could be done for less than the cost of the Waze acquisition. Beating Waze into a quality map database is going to be an expensive — well beyond the acquisition cost — and time consuming effort. Perhaps the most glaring lack in the potential Waze acquisition is the absence of a suitable POI database, which, in my opinion, is the most critical need that Facebook will have in local search.”

Dobson said he suspects that Facebook’s competitors are not concerned about the company’s potential acquisition of Waze. “Those who already in the mapping business — Google and Apple — will anticipate that it is likely that Waze could become a significant distraction for Facebook and delay the company effectively competing in the local search market. As far as the competitors are concerned, the longer it takes Facebook to mobilize its efforts in local search, the better,” he said. “In business, as in life, strange choices are made. Perhaps Facebook sees a future in Waze that depends on strategies being implemented by the company that we know nothing about. I hope so, as a good dose of innovation is just what the local search market needs.”

Distinguishing itself is another reason Facebook may be interested in Waze. Providing mapping and traffic capabilities may bring more consumers to its mobile users.

The company is also is redesigning its mobile pages platform to enable local merchant information, according to published reports. These new improvements may even challenge Foursquare and Yelp.

There were questions whether the deal with Facebook will go through as published reports indicated that Waze’s research and development activities would remain in Israel rather than go to California, where Facebook’s headquarters are based.

Google Interested in Waze to Cut off Facebook at the Location Pass?

The rumor mill is heating up as Internet giant Google and Apple are said to also be interested in Waze. “I saw a report indicating that Google was interested. If so, it would seem that this would be a move to deny Facebook access to Waze,” Dobson said. “Google already derives a significant amount of information from passive crowdsourcing — recording the GPS traces of the devices of their users — and I am not sure that the acquisition would provide them any opportunities that they are not already exploiting. Of course, we might remember that Garmin, who had no intention of buying TeleAtlas, made a bid and significantly raised the price that TomTom paid for the mapping company.”

Other analysts say while there have been several news articles on why Google should buy Waze, it all could be poorly informed speculation. Others say that the Israel tech press is quick to spread rumors. One analyst said, “I hear that the talks are legit, but my guess is that the deal in discussion is not $1 billion.”

Kevin Dennehy is GPS World’s editor for location-based services, writing a monthly column for the LBS Insider newsletter. Dennehy has been writing about the location industry for more than 20 years. He covered GPS and location technology for Global Positioning & Navigation News for seven years. His articles on the wireless industry have been published in both consumer and trade magazines and newspapers

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